400. Can you tell us what is Fannie Mae, we
cannot wait to hear!
(Mr Williams) They are mortgage intermediaries, they
buy in the mortgages from the mortgage lenders. It stands for
FederalI look to your advisers on this. You have the advice
and I can give it to you later. It is something like National
Federal Home Loans Agency, but it is spelt out as Fannie Mae and
Freddie Mac and Ginnie May and Ginnie Mac, if you would like all
of them. They are vehicles in the States used to underwrite the
housing market. 60 per cent of mortgages in the US are sold down
to these vehicles which have a Government guarantee which sits
underneath them of a no-failure clause. What they do then is buy
in the risk that lenders have taken on. The lenders take on the
risk according to standardised criteria which are set by those
agencies. In essence, because they are pooling that risk on a
massive basisthe Fannie May bonds are sold globally, they
are sold in the UK markets for example and they are bonds which
are backed by mortgagesyou have a repayment stream which
is the mortgage repayment stream. Those bonds operate on a global
basis but the risk is borne by these very, very large agencies.
Fannie Mae and Freddie Mac and all these other weird and wonderful
organisations basically now have a debt approaching the size of
the US Government's, possibly beginning to exceed it, and they
have absorbed that risk, and that has basically given a vehicle
underneath individual lenders to take on risks. Do not forget
in the States you have got a much more racially discriminated
housing market and one of the issues there was lenders being unwilling
to lend in certain markets because of the characteristics of the
people as well as the weaknesses of the market. That has allowed
home ownership to be extended substantially into those markets
and these vehicles were designed to assist that process.

401. These are federal and they are underwritten
by the federal government?
(Mr Williams) They were initiated by federal government
in the 1930s and subsequently developed. There was an implicit
government guarantee and I believe there still is, but they are
now fully independent organisations.

402. Obviously it does not have any bearing
on the Government's debt?
(Mr Williams) No.

403. So you think they could be used here?
(Mr Williams) There is an argument that one of the
problems in Britain is the level of the risk we are beginning
to identify across the diversity of markets is such that you face
a stark choice about whether they are lendable into them and whether
therefore they can be underpinned in ways that mean that individual
lenders can act in those markets in a prudent way. Do not forget
a long-standing concern about lending is a prudential concern
from the Financial Services Authority about whether you should
take on such risks.

Chairman

404. Is the phrase "safe as houses"
a bit in question?
(Mr Williams) "Safe as houses" as a concept?
As a generality, no, in specific localities, evidently yes.

405. But how many of your members will have
perhaps five per cent or ten per cent of their debt in low demand
areas?
(Mr Williams) Very unlikely. There may be some small
lenders who might have concentrations in such areas, but I think
the evidence is that they themselves, being aware over many years
of the frailties of local markets, have themselves spread their
risk and indeed their regulators would have insisted they spread
their risk. So when you look at it on a local market basis, the
evidence I have looked at in the past shows that in many of these
areas, which are quite old, the number of mortgaged properties
is quite low, many of the owners are cash buyers or outright owners
because they have been there a long time so the level of mortgage
risk is relatively low and the number of lenders is very substantial.
There is a very diverse range of lenders who have lent there.

406. So you are working pretty hard to make
sure none of your members go bust?
(Mr Williams) I do not think there is any prospect
of that.

Ms King

407. You also said that you wanted local public
authorities to underwrite loans, so how much would that cost the
public sector?
(Mr Williams) Local authority guarantees exist where
under the calculation of how much it would cost the local authority
they merely have to set aside the historically calculated loss
on such loan guarantees. The loan guarantee legislation is made
very limited use of by local authorities. There is a substantial
misunderstanding by local authorities of their loan guarantee
powers. It was more substantially used in the 1970s when most
local authorities came out of lending in local markets and private
lenders were encouraged to go in with guarantees. Those guarantees
were widespread at that time but subsequently hardly used. My
concern is maybe we are going back to a situation where some underwriting
by guarantee would be used.

Mr Wiggin

408. What effect do you think the Government's
proposals to increase council tax to 100 per cent on empty properties
will have?
(Mr Williams) It could make the situation worse, I
suppose. We have to understand that property is empty for a variety
of reasons. It might incentivise some people to do something with
it. It is a very negative way of incentivising people in a sense.
Alongside punitive council tax, there is the question of whether
there should be incentives to make use of property. Some people
will simply hold property for capital gain and, rightly, they
can make money out of that. We do have concerns (alongside punitive
treatment like 100 per cent council tax) over issues like licensing
of the private rented sector which again might have an impact
of deterring people letting their property.
(Ms Bennett) We think better incentives are things
like reducing VAT on renovating properties to bring them back
into use. So incentives rather than penalties.

Chairman: On that note, can I thank you very
much for your evidence. Can we have the next set of witnesses.